@article{af5a857821724c60b077ae73e18eb41d,
title = "Can land misallocation be a greater barrier to development than capital? Evidence from manufacturing firms in Sri Lanka",
abstract = "We quantify cross-firm misallocation in land and compare it with that in capital. Misallocation arises when a production factor produces greater marginal revenue product (MRP) in some firms than in others because the former firms have to pay a higher shadow production factor price which is usually distorted by persistent institutional factors. Consequently, the aggregate total factor productivity (TFP) could be increased through cross-firm factor reallocation within an industry. Existing literature mainly emphasizes the misallocation in capital and labour, or in agricultural land. Little is done to quantify the misallocation of industrial land. By using annual-firm-level survey data from Sri Lanka's manufacturing sector over 1994–2015, we find that the aggregate TFP gain from reallocating land is about five times of that from capital. Further, we find that firms can hardly grow bigger due to size-dependent land distortion. The results suggest that land distortion can be a crucial barrier to development.",
keywords = "Capital misallocation, Developing country, Firm-level distortion, Land misallocation, Sri Lanka, TFP",
author = "Kumari, {Ranpati Dewage Thilini Sumudu} and Chen, {Shawn Xiaoguang} and Bei Li and Tang, {Sam Hak Kan}",
note = "Funding Information: The results and views enunciated in this paper are those of the authors alone and in no way represent those of the Central Bank of Sri Lanka. Authors acknowledge the support from The University of Western Australia , the Central Bank of Sri Lanka, and the Department of Census and Statistics of Sri Lanka. They appreciate the feedback from the participants at Australian Agricultural and Resource Economics Conference 2021 and work-in-progress seminar series-2020 at The University of Western Australia. Authors also appreciate the insight given by Kenneth Clements, Chris O'Donnell, Atakelty Hailu, Christopher Parsons and Michael Jetter. Authors are also grateful to the editor, Prof. Sushanta Mallick, an anonymous associate editor, and two anonymous referees, for their constructive comments. Authors bear the responsibility for any remaining errors in the paper. Publisher Copyright: {\textcopyright} 2023 The Authors",
year = "2023",
month = sep,
doi = "10.1016/j.econmod.2023.106368",
language = "English",
volume = "126",
journal = "Economic Modelling",
issn = "0264-9993",
publisher = "Elsevier",
}